Pub. 7 2019 Issue 4

ISSUE 4. 2019 7 It would be virtually impossible to meet all of the requirements for report delivery outlined above without the use of technol- ogy. The bank’s IT system (platform) can produce timely and accurate information for reports to be included in the board package. Systems can accumulate data across business units, making it realis- tic to provide support data for ongoing risk assessments and for reporting at the business unit level. This technology can function not only as a comprehensive col- lection of financial information, but can also be used as the focal point for bank- wide risk management and control. The use of technology-produced reports supplies not only accurate data, but it also accumulates data over time which provides an active, dynamic benchmark against which bank performance can be measured. All the information in a data warehouse produced by the IT platform ties back to the source — the financials and the general ledger — allowing the bank’s management team to walk into a meeting with the information they need to support their position. If auditors request reports to assist them in their analysis, the bank can go to the data warehouse and recreate reports if there is any question of potential irregularities. Once we have the delivery issues ad- dressed, we can focus on the actual reporting and Best Practices. Board members greatly appreciate a shift towards a more efficient and effective agenda, with a focus on committee re- ports and presentation of only meaning- ful information about the condition and operations of the bank. Most directors only visit the bank once or twice a month, which makes a full understanding of the bank’s plans and status very difficult. There needs to be an educational element in board meetings. Most directors have an ongoing need and desire for growth and development in their understanding of the banking industry. With education, directors can become more effective in their recognition and understanding of the risks to be monitored, as well as the factors that most influence a bank’s strength and performance. Financial and operational presentations by management should focus on inform- ing the board members on what time it is; not how the watch was built. This approach can result in more interesting and informative board meetings and will likely result in greater interaction and participation by the board members. There are no regulatory requirements on information that must be included in the monthly board package, the only requirement is that the board should re- ceive and review enough information to effectively manage and oversee the bank. That being said, there are a few Best Practices for assembling information for your board’s review. Best Practice #1 – Provide the Board with Information, Not Data Change the monthly financial report to something meaningful. Most boards need to know only about 20–30 key data points and ratios and how those numbers compare to budget, peer banks and prior year results to have a good handle on the condition of the bank. The typical financial report at a bank board meeting is encompassed in a 25–30 page document that blurs into a very de- tailed, and often meaningless, presentation of pure data that is often difficult to follow. Providing meaningful information in an understandable format is essential for the board members to identify and manage risk. Less is often more in effective board presentations. Best Practice #2 – Encourage Board Participation No board should have a Devil’s Advocate who is in opposition to everything, but there should be an open enough relation- ship in the board room which allows for opposing views and occasional “no” votes. Many times there are meaningful ques- tions that go unasked in the board room. Board members need to feel informed and comfortable enough to ask challenging questions, and also to say that they don’t understand a proposal or a presentation. In my experience, “why?” can be a very powerful question. I know several bank boards that have greatly benefited from a few independent thinking directors in the past years that lead up to the current eco- nomic downturn. Those directors had the insight and the courage to question the popular belief of the booming real estate market. More importantly, the culture of the boards on which they served allowed There is an implied obligation to educate the bank’s directors regarding the best practices employed by the bank, so they can effectively make decisions based on the information they are presented. for real discussion of concerns expressed by directors. Information to include in the board package: Financial performance reports — These reports provide supporting information of the bank’s health and profitability. Risk management reports — Board re- ports should allow the bank’s directors to assess the institution’s ability to manage, monitor and control risks through the re- view of processes, policies, and practices. Again, there are no regulatory require- ments for these reports, and it is obvi- ously different for each bank. Consider your bank’s complexity and markets and require your management to provide in- formation that will give you the ability to make informed and quality decisions. n Darlia Fogarty brings a wealth of knowledge and practical experience to Compliance Alli- ance banks and staff. Darlia served as a com- missioned national bank examiner with the OCC for a large majority of her career, where she developed an expertise in compliance while administering examinations in banks of all sizes. She contributed as a member of the Retail Credit Team, with a strong knowledge of Compliance as well as all other areas of the banks operations and lending. Darlia also has many years of experience as a compliance officer/auditor and 4 years as a compliance/ audit consultant. As a speaker, Darlia travels to several conven- tions, meetings and schools throughout the year, and can often be found speaking at com- pliance schools and conferences. Her articles can be found in State Banking Association magazines, Compliance Alliance newsletters and several other publications.